U.K. Investigates Disappointing LTE Auction

National Audit Office launches probe into whether the government failed to maximize revenue from February's 4G spectrum auction, which netted only 67% of predicted proceeds.

The U.K. managed to net only £2.34 billion ($3.6 billion) from the sale of nationally held radio wave spectrum to mobile vendors for their new 4G LTE services, we reported in late February.

Many commentators at the time expressed surprise about the low figure. The informed knew the number would not rival the £22 billion ($37 billion) figure raised by the previous big spectrum sell-off -- for 3G in 2000 -- given both the ongoing U.K. recession, but also the way the sale had been structured. Even so, the price the government, acting via its communications regulator, Ofcom, had secured seemed way off-target. At only 67% of the £3.5 billion ($5.3 billion) predicted as the size of the check government bean counters could expect, it did seem pretty unimpressive.

In December, Chancellor George Osborne, the country's head of economic policy, said he had firm plans for the estimated £3.5 billion proceeds to fix the country's lackluster finances.

It seems that surprise has manifested a possibly worrying outcome for officials who led the process, which was conducted behind closed doors. The Guardian reported Sunday that the country's official public sector spending watchdog, the National Audit Office, wants to know why the sale delivered so much less to the national pocketbook than expected.

The Guardian says the NAO's head, Amyas Morse, has written to the Labor opposition party, saying that he intends to conduct a "value-for-money study of Ofcom's recent auction of 4G spectrum" and is preparing the terms of an investigation after complaints from that party.

Labor is pointing to alleged remarks by Ofcom's chief executive, Ed Richards, that suggested he had not told his team to make maximizing revenue the prime aim of the auction, which resulted in the state failing to "get value for money on this project."

Instead, Ofcom followed a procedure where winners in one of the 50 secret ballots only paid slightly more than the second-highest bidder. Though it was intended to make the auctions harder to tamper with, the result was that the process, in the story's words, ended up "similar to an eBay auction" process.

The paper claims that even bidders weren't happy with the approach used, citing an unnamed participant to the effect that Ofcom neither raised the amount he government was looking for, nor ensured spectrum found its way into the hands of those who really wanted it.

"It is entirely right that the National Audit Office has launched this investigation," said member of Parliament Helen Goodman, opposition minister for media and communications. "Serious questions must be answered as to why the government ended up a billion pounds short of the estimate George Osborne had provided just months earlier."

When the 3G auction took place, her party, she told the newspaper, "ensured" maximizing revenue for the country's use was an objective, and not doing the same for 4G was "a serious mistake."

Both Ofcom and the government responded to the story, with the former saying the auction it ran was a "success" and will "lead to investment in new services, greater innovation and lower prices, plus enhanced coverage with a rule to cover almost all of the U.K. population by 2017 at the latest."

The government told The Guardian that it hadn't come up with the £3.5 billion figure in the first place, pointing to the independent Office for Budget Responsibility as the source.

Though no one at Ofcom -- or even Osborne -- it likely to lose a job as a result of this probe, the National Audit process does allow MPs, via their influential select committees, to put pressure on both the senior officials and lawmakers involved.

That could end up as bad news for Chancellor Osborne, already seen as losing support among his own Conservative party in Parliament for a series of fumbles and his patent inability to figure out a way to restart the U.K's economic engine after three years of austerity.

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